GAMUDA

CuttingFY21E earnings

 Our revisions mainly incorporate slower property progress billings at its Malaysian projects in 4Q and delay in recovery at its tolled highways. At its E&C ops, we maintain our MYR2b p.a. job win assumption pending an official award of the PSR Island A Phase 1 reclamation works (MYR4-4.5b)which are now expected to start in Aug 2021.Having suspended its1stand 2ndinterim dividends for FY21, the prospects of a dividend for FY21 are dim; we now expect zero DPS for FY21 (vs. 8sen previously)

Orderbook replenishment prospects

Outstanding E&C orderbook stood at MYR4.9b as of end-Apr2021 and this will  double  with  reclamation  works  and  turnkey  contract  for  the  PSR Island A Phase 1. Elsewhere, tender outcome for two Australian projects is expected by YE20, while KVMRT3 prospects remain positive although the tender call is expected to be slightly delayed due to changes in the project  scope. Elsewhere,  unbilled  property  sales  was  MYR4b  end-Apr 2021, having locked in MYR2.2b in pre-sales during 9MFY21 (+83% YoY)

Expect a weaker 4Q due to FMCO

Gamuda’s 9MFY21 net profit of MYR374m (-4% YoY) was in-line at 76%/ 69% of MKE/street’sFY21Eas3Q saw earnings (+15% QoQ)closing in to 2QFY20/pre-MCO  levels. That  said,  4Q  earnings  should  be  weaker  as works at all its property projects in Malaysia have halted since 1 Jun due to the FMCO, which has also affected traffic at its tolled highways.

Price Driven

1.Foreign  shareholding  level  fell  to  its  low  at 22%  (Aug 2015 till Aug 2016).

2.Post GE14 overhang on Malaysia construction stemming from i) review and cancellation of major infrastructure projects and ii) potential abolition of tolled highways. 

3.Potential revival of ECRL and sale of its tolled highways.

4.News on revival of Bandar Malaysia project (May 2019), followed by Minister of Finance (Inc.)'s proposed take-over of Gamuda's four tolled highways (Jun 2019).

5.Start of Movement Control Order (MCO) (18 Mar 2020).

6.Announcement (on 11 May 2021) of Gamuda's exclusion from MSCI Global Standard Indexes.

Engineering and Construction

a) Penang  South  Reclamation(PSR)  Island  A  Phase  1  reclamation  works (MYR4 to 4.5b) are  now expected  to commence in Aug  2021 vs. an earlier target  of end-Apr  2021due  to the requirement  to  submit  for  approval, its Environmental Management Plan (EMP). 

b) Remains optimistic on two other Australia projects which includes Sydney Metro West (one of two tunnels) and Western Sydney Airport Metro Link (tunnel & station boxes). Both projects have MYR5b each.

c) KVMRT3 prospects remain positive, although its roll out could be slightly delay due to changes in the project scope. Projects worth MYR22.5b to MYR 30b. 

Property Development 

 a) Property earnings normalized  in  3QFY21 as Celadon  City’s building  approval delays  have  been resolved(recall  that  the  delay  was largely due to  the  national  elections). Strong  progress  billings  at  Celadon  City  are  expected to  continue  into 4QFY21, offsetting weak billings at its Malaysian projects where works  have been suspended since 1 Jun 2021 due to the FMCO.

b) MYR2.2b  pre-sales  in 9MFY21  (+83%  YoY),with 2/3 contributed  by its overseas projects in Vietnam and Singapore. The top contributors, at 80% to pre-sales, were Celadon  City,  OLA, Gamuda  Gardens, Gamuda  City  and Horizon  Hills.  The  internal  MYR3.5b  pre-sales  target  for  FY21  is  unchanged (+61%  YoY)as  the  focus  remains  on  driving  sales at  its  Malaysian  projects during the FMCO while the prospects of its overseas projects remain positive.

c) Based on the property development, Gamuda cove is their biggest project now. 

On the other hand, things to consider is the tolled highway. As we know currently, Malaysia is having Emco in KL and Selangor area. Gamuda tolled highway includes KESAS, LDP, SPRINT and SMART. 

EMCO has totally impact on their tolled highway revenue.